In this patent infringement case about mobile handset digital watermarking technology, a Texas court rejected the royalty rate methodology of plaintiff’s expert because the expert failed to explain, mathematically, how his survey data led to his 10% factor to apportion the value of the handset to the patented technology. Further, he failed to show how the patented features compared to the features that were the subject of the surveys.

Here, plaintiff’s expert Leon Hawk Travis did not argue that the patented technology was the basis of customer demand for the mobile handsets, instead opining that the smallest salable unit of the accused product was the handset itself, not the internal chipset. He then set out to apportion the total value of the handsets to account for the patented technology, and arrived at an apportionment factor of 10%. In doing so, he relied upon two consumer surveys that indicate that consumers value broader security features. The court accepts that these surveys may not provide an exact analog for the patented technology, but leaves that as a question of the weight the jury gives his testimony. However, the court excludes the expert’s opinions for two reasons. First, he did not separate out the patented from the unpatented features (again, the surveys referred to broader security features). Second, the expert failed to explain how, mathematically, the surveys led him to the 10% apportionment factor, “making the 10% factor seemingly ‘plucked out of thin air based on vague qualitative notions’ and thus excludable.”

The court also took issue with the expert’s use of industry licensing rates in determining his reasonable royalty. In support of his 3% royalty rate, the expert offers “industry guidelines” from two sets of licensing data. One licensing study reported a median royalty rate for software technology between 1.5% and 4%. Based on this, he concludes that “a rate closer to 3% is more apt.” But the court explains that he offers no attempt to account for the “technological and economic differences” between the “comparable” licenses and the hypothetical license, as called for under Wordstech Sys. v. Integrated Networks (Fed. Cir., 2010). The court notes:

There is nothing that suggests that these software industry licenses have anything to do with the patented technology of digital watermarking, or even more generally software security. The licenses to which he compares the negotiation pertain to “software” or “software technology,” but based on these generic categories, his presentation of the licenses is too generic to support a reliable comparison. As such, Mr. Travis’ opinions on the 3% royalty rate are inadmissible.

On both issues, the court allows the expert another bite at the apple, but only narrowly so. He may explain how he calculated his 10% apportionment factor and may provide a detailed comparison between the “comparable” licenses (to which the expert probably has no access) and the technology at issue.